CEO compensation and executive pay structures

¶ … seemingly outrageous salaries of many CEOs have sparked a great deal of debate. As CEO salaries reach 532 times that of the average worker, many people note that these exorbitant salaries seem to have little impact on CEO performance. In addition, high CEO salaries are morally suspect, as they are often decided by powerful figures, and reflect a clear economic and social division in a country that is founded upon principles of equality and democracy. Ultimately, typing CEO compensation to worker salary and worker stock options may prove a way to make CEO compensation more realistic and less morally suspect.

In the past decades CEO salaries have escalated enormously. In 1980, the average CEO mad 42 times the wage of the average worker. That figure rose to 85 times in 1990, but by 200, the average CE) made 531 times that average hourly worker's pay (Reh).

Statistics seem to show that CEO compensation is not justified by performance. For example, the total return to shareholders is often higher for companies with CEO compensation under 500,000 USD than for corporations with CEO compensation over that amount (Reh). The belief that CEOs salaries are unjustified is widespread. Notes F. John Reh, "CEOs are paid too much. It has minimal effect on their performance. It has no quantifiable effect on the performance of their companies. The only measurable effect is to drive an ever widening gap between the CEOs and the people they depend on to produce results."

There are a number of moral considerations raised by the issue of high CEO compensation. First, it seems morally suspect to pay one individual at a rate that is astronomically higher than other individuals within the same company. This smacks of social stratification and an economic hierarchy that seemingly goes against the grain of the ideals of equality contained in the U.S. Constitution.

In addition, the fact that CEO salaries are set by a compensation committee that contains other chief executives almost exclusively is morally problematic. A CEO's performance impacts a wide number of individuals, from employees to stockholders, and yet these individuals have little say in the compensation of the CEO. This fact certainly seems at odds with the democratic principles held by many Americans. In essence, it hardly seems fair that those people who are most affected by a CEO's actions have the least amount of say in the CEO's remuneration.

Many corporations have tried to reduce some of these criticisms by tying CEO compensation to company performance. As such, corporations are given stock and stock options in the corporations, in lieu of some portion of their salary. However, some research shows that these attempts have been largely unsuccessful. A recent meta-study from found that CEO "motivational compensation does not boost the stock price or improve return on assets, equity, price-earnings ratios or other measures of financial success" (Jones).

At the same time, there are other important problems with tying CEO compensation to stocks and stock options. For example, a general recession or decline in the markets would damage CEOs as a result of market decline. In this case, a CEOs "pay" would decrease through no action of the CEO. The best that the CEO could hope for would be to minimize damage, and hope that their good performance would help buoy their stock in a bad market.

Personally, I believe that exorbitantly high CEO salaries are morally dubious, at best.

While it is true that CEOs should be paid well to reflect the heavy responsibilities and demands of their job, it is also profoundly difficult to justify a CEO salary that is an exorbitant 531 times that average hourly worker's pay.